Britvic - COVID-19 update

Britvic has issued an update on the impact of the coronavirus. Prior to recent developments, trading was broadly in line with expectations. The recently announced government-mandated measures, however, will significantly affect consumption in outlet and on-the-go. The company has undertaken extensive modelling. Assuming the current conditions persist across its key markets, management’s best estimate is that the impact on the group is a reduction in EBITA of £12–18m per calendar month. Britvic also updated on its financial position, with headroom available versus its lending covenants.

The COVID-19 situation is clearly unprecedented and it is still too early to determine its full effects given the duration of the restrictions is unknown at this stage. Britvic has undertaken extensive modelling, but of course that could also prove to be inaccurate. For example, Britvic has anticipated some minor potential disruption to its supply chain, but any enforced closure of its major production or distribution sites is not included. As discussed above, the company estimates a £12–18m EBITA impact per calendar month. This compares to current consensus adjusted EBIT of £222m for FY20.

Britvic has also provided an update on its financial position: net debt/EBITDA was 2.1x at end FY19 versus covenants at 3.5x. EBTIDA/net interest expense was 14x for FY19 versus covenants at 3x. Britvic believes its relationship with a broad banking group and its position as a longstanding issuer in the private placement market could provide access to c £1bn of facilities, which will help absorb the impact of the coronavirus.

Britvic’s share price has been under pressure since the COVID-19 pandemic came to the fore in the UK, with a 30% fall between 5 and 20 March. The latest announcement has led to a further fall of c 6%. Consensus is broadly unchanged since our last note in January, suggesting the risk to the numbers is on the downside. The company’s relatively higher leverage and its comparatively higher fixed costs mean it is less resilient to a sudden demand shock than some of its better-capitalised peers.

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